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6 Hottest ETFs to Watch This Week

by ETF Base on April 25, 2010

Markets continued their advance this week in the face of a potentially damning SEC inquiry into Goldman’s practices. This news was countered by surprisingly strong housing data which showed the biggest jump in new home sales since 1963. Elsewhere in China, there is continued sentiment that there may be a housing bubble brewing there which would put the US debacle to shame. And the debt crisis in Greece is still unraveling. For the week, the S&P500 and the Nasdaq index each gained 2%. With that backdrop, ETFs to watch for the week that performed well over the past 5 trading sessions include some usual suspects like real estate and energy:

Non-Leveraged ETFs

ITB – iShares Dow Jones US Home Construction – Up 11% – With surprisingly robust home sale numbers last week and the beating homebuilders took in the downturn, this is the rebound play of the year alongside Financials. Year to date, ITB is up 27% vs. 9% for the S&P500. This ETF is comprised of the top homebuilder names you’ll probably recognize like Toll, KB and Pulte, but Home Depot is also in the Top 10 holdings since it is heavily reliant on new construction as well.

KRE – SPDR KBW Regional Banking ETF – Up 8% – Regional banks have continued to do well, as bankruptcies have not occurred in nearly the fashion initially projected. The recent Goldman inquiry, while portending danger for large investment banks, would have no direct impact on smaller regional banks. While some dabbled in CDOs and mortgage backed securities and many had their hands in subprime lending, very few were involved in packaging or selling of complex mortgage instruments and derivatives. Year to date, KRE is up 31% vs. 9% for the S&P500.

ICF -iShares Cohen & Steers Realty Majors – Up 8% – ICF has really done well versus the market as a whole, up 80% vs. 41% for the S&P500 for the prior year period and also besting the S&P500 14% to 9% YTD. Realty shares crashed so hard in 2008 and 2009 that investors savvy enough to buy distressed assets at the bottom saw triple digit gains not likely to be seen again until the next crash.

Leveraged ETFs:

DRN -Direxion Daily Real Estate Bull 3X – Up 22% – For the same reasons mentioned above for the non-leveraged realty and homebuilder stocks, real estate is in a pure uptrend right now and adding leverage to the mix is as supercharged a return as you can get without employing options. Note however, that leveraged ETFs lose value over time if the trend is broken (which they always are) and it’s only a matter of time before this hot trade becomes your worst nightmare, so only consider leveraged ETFs for trades – and only once you fully understand how daily rebalancing degrades share price over time.

ERX – Direxion Daily Energy Bull 3X Shares – Up 12% – This leveraged energy ETF had a strong showing for the week as well, with the price of crude breaking $85 per barrel. New home sale data helped boost investor sentiment, as well as the perennial summer driving season that gets blamed for high oil prices every year. ERX is up 17% YTD and 78% over the prior 1 year period.

FAS – Direxion Daily Financial Bull 3X – Up 9% – The Investment Banks and Large Financials have continued to outperform in a big way and regardless of ire on main street and SEC inquiries, the index just keeps running. With taxpayers essentially lending money to them at 0%, they find it hard pressed to not show incredible year over year comps at earnings time. FAS is now up 50% YTD and 365% since the March lows. For investors wary of the leverage employed with FAS or of potential legislation sending Financials into a near term correction, it may be worth considering the Preferred Stock ETF which acts like a bit of a hybrid stock/bond with a juicy 7% dividend yield to boot.

Disclosure: Only positions in ETFs mentioned are short paired trades with ERX/ERY and FAS/FAZ.